FILED: NEW YORK COUNTY CLERK 05/08/2013

NYSCEF DOC. NO. 1

INDEX NO. 651674/2013 RECEIVED NYSCEF: 05/08/2013

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X VARIETY MEDIA, LLC, a Delaware Limited Liability Company,

-- against -REED ELSEVIER, INC., a Massachusetts corporation; VARIETY, INC., a Delaware corporation; REED ELSEVIER PROPERTIES, INC., a Delaware corporation; REED BUSINESS INFORMATION, LTD., a foreign corporation; and DOES 1-25, inclusive, Defendants.

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To the above-named defendants:

YOU ARE HEREBY SUMMONED to answer the Complaint in this action and to serve a

copy of your answer, or, if the complaint is not served with this summons, to serve a notice of appearance, on the plaintiffs' attorneys within (20) days after the service of this summons, exclusive of the day of service; or within thirty (30) days after completion of service made in any other manner than by personal delivery within the State. In case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the Complaint. Dated: New York, New York May 8, 2013

PRYOR C A HMAN LLP

By:

James S. 0', nen, TT es Square N w York, New York 0036-6569 12) 421-4100 Attorneys for Plaintiff Variety Media, LLC

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SUMMONS

Plaintiff,

Index No.

To:

Reed Elsevier Inc. 125 Park Avenue New York, New York 10017 Attn: Julie Goldweitz Reed Business Information Ltd. Quadrant House The Quadrant Sutton SM2 5AS Attn: Stuart Whayman Morgan, Lewis & Bockius LLP 101 Park Avenue New York, New York 10178 Attn: Robert W. Dickey

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SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X VARIETY MEDIA, LLC, a Delaware Limited Liability Company, Plaintiff, -- against -REED ELSEVIER, INC., a Massachusetts corporation; VARIETY, INC., a Delaware corporation; REED ELSEVIER PROPERTIES, INC., a Delaware corporation; REED BUSINESS INFORMATION, LTD., a foreign corporation; and DOES 1-25, inclusive, Defendants.

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THE PARTIES
1. and County of Los Angeles. 2. 3.

Plaintiff Variety Media, LLC ("Plaintiff') by its attorneys, Pryor Cashman LLP, as and

for its Complaint against defendants Reed Elsevier, Inc., Variety, Inc., Reed Elsevier Properties, Inc., and Reed Business Information, LTD, alleges as follows:

At all relevant times, Plaintiff was and is a limited liability company duly

organized under the laws of the State of Delaware with its principal place of business in the City

Upon information and belief, Defendant Reed Elsevier, Inc. is a Massachusetts

corporation with its principal place of business in New York, New York. Upon information and belief, Defendant Variety, Inc. is a Delaware corporation

with its principal place of business in New York, New York.

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Index No.

COMPLAINT

4.

Upon information and belief, Defendant Reed Elsevier Properties, Inc. is a

Delaware corporation with its principal place of business in New York, New York. 5. Upon information and belief, Defendant Reed Business Information, LTD is an

6.

Defendants Reed Elsevier, Inc.; Variety, Inc.; Reed Elsevier Properties, Inc.; and

Reed Business Information, LTD are sometimes collectively referred to herein as "Reed." 7. The true names or capacities, whether individual, corporate, associate, or

otherwise of defendants DOES 1 through 25, inclusive, and each of them, are unknown to Plaintiff at this time and Plaintiff will amend this Complaint to show their true names or capacities when learned. 8.

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Defendants to perform the illicit acts alleged herein. 9.

Upon information and belief, DOES 1-25 aided and abetted and conspired with

Defendants, and each of them, were each the agents of the other in all the acts and

transactions hereinafter alleged, acting within the scope and course of said agency.

NATURE OF THE ACTION

10.

This is an action for breach of contract and declaratory relief Plaintiff purchased

certain assets of Defendants related to the well-known Variety publication pursuant to a written asset purchase agreement that provided for Plaintiff to accept assignment of certain contracts that

were to be enumerated on a disclosure schedule. Only contracts that were disclosed on that schedule were to be assigned and contracts not disclosed were excluded as were all liabilities flowing from them. 11.

The asset purchase agreement provides that Defendants shall indemnify Plaintiff

against any liabilities flowing from undisclosed, excluded contracts.

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entity organized and existing under the laws of England.

12.

Plaintiff has been sued and has incurred and is continuing to incur costs and fees

in connection with contracts that Defendants withheld and failed to disclose in due diligence or in the disclosure schedule.

Plaintiff.

FACTUAL ALLEGATIONS

14.

Reed is a global publisher and information provider operating in the science,

medical, legal, risk and business sectors. Reed Business Information ("RBI") is Reed's business division and produces industry-specific data services and tools, online community and job sites, and business magazines. Among the titles owned by Reed and RBI was Variety, the famous American entertainment-trade magazine, which it acquired in 1987. 15. In 2008, Reed sought to divest itself of the entire RBI division but was unable to

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and online marketing solutions. 16. 17. Journal. 3

do so given the burgeoning financial crisis. Following those aborted sales efforts, Reed shifted

the focus of its RBI division away from print trade magazines and to paid content, data services

In July 2009, RBI announced its intention to sell most of its North American trade

publications and by April 2010, Reed had sold twenty-one U.S. trade magazines and announced that an additional twenty-three would cease publication due to the weak economy. In March 2012, Reed announced that, as part of RBI's efforts to shed U.S. print-

magazine holdings and focus more on data services, it would sell Variety. That announcement

was reported by various news outlets including the Los Angeles Times and the Wall Street

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A.

Reed and Variety

13.

Despite due demand therefor, Defendants have failed and refused to indemnify

B.

The Letter Agreement and Operating Agreement

18.

Upon information and belief, on or about March 14, 2012, with Variety on the

auction block, Reed entered into a letter agreement (the "Letter Agreement") with third party

parties related to a contemplated "Beverly Hills Entertainment Week," a planned week-long festival focusing on film, television, new media and finance (the "Festival"). 19.

earlier of sixty days following the agreement's effective date or the entry by the parties into a definitive agreement related to the operation of the Festival. 20.

Sometime thereafter, Reed and BHMG executed an undated agreement entitled

Limited Liability Company Agreement of BHEN Enterprises LLC (the "Operating Agreement"). 21. The parties to the Operating Agreement are Variety, Inc. and BHMG. The

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sell Variety. 22. 23. 24. 4

signatures on the Operating Agreement are not dated although the agreement states that it was "adopted and agreed to" on March 30, 2012 -- sixteen days after RBI announced its intention to

BHMG did not exist as an entity in March 2012. According to Secretary of State

records, BHMG was formed on April 26, 2012. BHEN Enterprises was formed in July 2012. Upon information and belief, the Operating Agreement was not entered into in

March 2012 as the Operating Agreement purports to indicate. The Operating Agreement, to the extent it was validly entered into at all, was formed after July 2012. The Operating Agreement purports to grant BHMG a 50% share of gross

revenues achieved from sponsorships acquired in connection with the planned Festival with no responsibility for the costs of the Festival, which are entirely to be borne by Variety, Inc.

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The Letter Agreement was temporary; it provided that it would terminate on the

Beverly Hills Media Group, LLC ("BHMG") establishing a joint venture between the contracting

Moreover, the Operating Agreement is also structured such that BHMG claims rights that are much broader than just the Festival. 25. In that regard, while the terms of the Letter Agreement and Operating Agreement

Inc. For example, the Letter Agreement provided that it would expire 60 days after its execution if no Operating Agreement was entered into before that time. By contrast, the Operating

26. that provides:

Moreover, the Operating Agreement contains a "Conflicts of Interest" provision

If a Member wishes to operate or be a party to a festival outside of Beverly Hills that is similar to or otherwise achieves a similar purpose as the Festival, such Member must not do so until it has first offered

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(Emphases supplied.) 27. 5

the Company an opportunity [to! participate in such new festival on terms similar to those herein. For the removal of doubt, neither Member may operate or be involved in a festival outside of Beverly Hills, which is similar to the Festival without the Company's written consent; provided, however, that if the Company is given an

opportunity to participate in such new festival on at least the same terms herein but chooses not to do so, such consent shall be deemed given."

Notably, the Conflicts of Interest provision of the Letter Agreement provided that

it would "not apply in the event of a merger, consolidation or the acquisition by a third party of all or substantially all of the assets of Variety." (Emphasis supplied). Thus, if the Operating

Agreement were deemed binding upon Variety, Inc., it would be subject in perpetuity to a broad conflicts of interest provision requiring it to offer to BHMG the opportunity to participate in any festival or other similar event worldwide on the same onerous and financially disadvantageous

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Agreement exists in perpetuity and can only be terminated by the agreement of all members.

are similar in certain respects, the Operating Agreement is significantly more onerous to Variety,

terms as those set forth in the Operating Agreement. Those obligations do not exist under the terms of the Letter Agreement. 28. The Operating Agreement contains no indication that Variety, Inc. was

was represented in the agreement by the personal attorney of an officer of Variety, Inc. and not Reed's counsel.
C. The Asset Purchase Agreement

29.

Reed's efforts to sell Variety eventually culminated in an agreement with Penske

Media Corporation ("PMC") to purchase the assets of Variety, Inc., and PMC formed Plaintiff for the purposes of the acquisition. 30.

On or about October 9, 2012, Plaintiff entered into an Asset Purchase Agreement

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"Transaction"). 31. 32. 6

(the "APA") with Defendants in which Plaintiff purchased certain assets owned by Defendants --

namely, the Variety publications and related intellectual property and other tangible assets (the

As part of the APA, Defendants assigned, and Plaintiff accepted the assignment of,

various contracts to which Defendants were parties in connection with their ownership of the Variety publications and the related intellectual property and other assets. The scope of the assets and liabilities conveyed to and accepted by Plaintiff under

the APA is defined by Article II. Specifically regarding contractual liabilities, under Section 2.1(d), only those Contracts identified on Section 2.1(d) of the Sellers Disclosure Schedule were included as "Assigned Contracts." All other contracts of Defendants not disclosed to Plaintiff on Section 2.1(d) of the Sellers Disclosure Schedule are "Excluded Contracts" and were not

transferred or conveyed to Plaintiff under the APA. Among the "Excluded Liabilities," which

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represented by counsel in connection with the agreement. According to BHMG, Variety, Inc.

remain with the Sellers, are "all Liabilities arising out of, relating to or in connection with the Excluded Contracts and other Excluded Assets." 33. The contracts assigned to Plaintiff that were identified in a Sellers Disclosure

diligence efforts prior to the close of the Transaction. 34.

The Sellers Disclosure Schedule discloses the existence of the Letter Agreement,

disclosed to Plaintiff as part of Plaintiffs due diligence by Defendants or otherwise and is not

listed on the Sellers Disclosure Schedule. The Operating Agreement is therefore an Excluded Liability under the APA and was not assumed by Plaintiff as part of the Transaction. 35.

No other agreement or contract with Defendant BHMG apart from the Letter

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36. 37. D. The BHMG Claim 38. never before had seen. 39. 2012. 40. 7

Agreement was assigned to Plaintiff as part of the APA with Defendants or otherwise. The Letter Agreement has expired under its own terms. Plaintiff is not a party to the undisclosed Operating Agreement.

Following the close of the Transaction, BHMG forwarded to Plaintiff a copy of

the Operating Agreement, which Defendants had withheld from Plaintiff and which Plaintiff

BHMG claimed the Operating Agreement was entered into at the end of March

BHMG further claimed that the Operating Agreement and certain other

undisclosed "actions" gave BHMG the "exclusive right to activate multi-event, year-round sponsorships for Variety" well beyond the single Festival contemplated in the Letter Agreement.

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which by that time had expired pursuant to its terms. The Operating Agreement was not

Schedule were also provided to Plaintiff for its review and consideration as part of Plaintiffs due

41.

BHMG further claimed that BHMG's rights extend beyond the proposed Festival

in Beverly Hills in that the Festival "became a platform to activate existing Variety events year round." BHMG asserted that as a result of the APA and Transaction, Plaintiff became a party to

canceled by both parties." 42.

BHMG further claimed that the Operating Agreement "is a general template, but

43.

Following an exchange of communications between Plaintiff and BHMG in late

2012 and early 2013 regarding the terms of the Operating Agreement, BHMG, through its

principal Bert Bedrosian, asserted that Plaintiff had repudiated the Operating Agreement through its actions and was therefore in breach of the Operating Agreement. BHMG demanded that

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44. during the course of the mediation sessions. 45. 46. 8

Plaintiff participate in the dispute resolution proceedings set forth in the Operating Agreement. Out of an abundance of caution, and in the spirit of compromise, Plaintiff agreed

to mediate the claim asserted by BHMG. Plaintiff and BHMG participated in two mediation sessions with a JAMS mediator on February 21 and April 26, 2013. No resolution was reached

On April 30, 2013, BHMG filed suit against Plaintiff in the Los Angeles Superior

Court, Case No. 507496 based upon its allegations that Plaintiff had repudiated the Operating

Agreement. BHMG alleged claims for Breach of Fiduciary Duty, Conversion, Breach of Contract, Breach of Duty of Good Faith and Fair Dealing and Declaratory Relief. BHMG alleged $10 million in damages and a right to recover punitive damages. On May 1, 2013, Plaintiff filed an Answer to BHMG's Complaint generally

denying the allegations thereof and asserting various affirmative defenses and a counterclaim

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the actual written correspondence, and Variety approved decks further clarify our relationship."

the Operating Agreement, an agreement it claimed "has no expiration date and can only be

alleging claims for Fraud, Declaratory Relief, Interference, Trademark Infringement, Common Counts and Unfair Competition. 47. Upon information and belief, as a result of the terms of the Operating Agreement

and an authorized user of the Variety marks, which Plaintiff owns. BHMG now also continues to disparage Plaintiff in the marketplace and interfere with Plaintiffs business by making false representations to potential sponsors that BHMG is exclusively authorized to activate

sponsorships on Plaintiffs behalf pursuant to the Operating Agreement. BHMG also has sought to register certain trademarks containing the phrase "Power of," which are confusingly similar to trademarks owned by Plaintiff as a result of the Transaction. 48.

BHMG obtained a single sponsor for the planned Festival. Upon information and

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49. in a bank account owned and controlled by BHMG. 50. 51. 9

belief, that sponsor paid Variety, Inc. $500,000 in sponsorship money. Upon information and belief, Defendants paid to BHMG $162,500 and the

remaining $175,000 to BHEN Enterprises, LLC -- the entity formed by the Operating Agreement -- to offset the costs of activation of the sponsorship. Of that $175,000, $50,000 was paid to an affiliate of BHMG as a commission for obtaining the sponsor. The remaining $125,000 remains

Since Variety, Inc. and BHMG elected, prior to the close of the APA Transaction,

not to pursue the Festival, Plaintiff has been forced to accommodate the sponsor by providing alternative sponsorship opportunities and activations at Plaintiffs sole cost and expense. Although BHMG has represented that the $125,000 currently maintained by it

would be paid to Plaintiff to reimburse it for the expense of accommodating the sponsor, it has

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between BHMG and Variety, Inc., BHMG markets and holds itself out as a partner of Plaintiff

failed and refused to remit the money to Plaintiff. Plaintiff has incurred well more than $125,000 in expenses in connection with said sponsor. E. The COP Claim 52. Plaintiff was recently provided with the following amendments in respect of that

certain Printing Agreement made as of January 1, 2002, by and between Variety, Inc. and

California Offset Printers (collectively, the "COP Amendments"): (1) Amendment to Printing Agreement entered into as of July 1, 2005; (2) Letter Amendment to Printing Agreement

between California Offset Printers, Inc. and Variety, Inc. dated September 23, 2011; and (3) Letter Amendment to Printing Agreement dated July 31, 2012. 53.

Like with the BHMG Operating Agreement, none of the COP Amendments was

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54. Liabilities, which remain with Defendants. 10

included within Section 2.1(d) (the "Assigned Contract" portion) of the Sellers Disclosure Schedule. While certain other portions of the Sellers Disclosure Schedule did include a

reference to a July 2012 amendment to the COP printing agreement (with no reference to any other amendments), no such amendments were ever provided by Defendants as part of Plaintiffs due diligence in connection with the APA and were not included as assigned contracts on the Sellers Disclosure Schedule. Indeed, Plaintiff never saw any of the COP Amendments until they

were forwarded to Plaintiff by COP after the closing of the acquisition transaction. The most significant of the undisclosed amendments was the amendment dated in September 2011, which

purported to extend the term of the unsigned Printing Agreement until June 2016. As a result of Defendants' withholding of the COP Amendments, they were not

assigned to or assumed by Plaintiff in connection with the APA and, to the extent the COP Amendments constitute valid agreements and/or binding obligations, they are Excluded

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55.

California Offset Printers has contended that the COP Amendments are

obligations binding upon Plaintiff and has threatened legal action against Plaintiff for alleged breaches of the COP Amendments.

56.

The APA provides that:

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57. indemnification obligations in connection therewith. 58. 59. amount to a breach of the APA. 11

Plaintiff is a member of the Purchaser Indemnified Group as that phrase is defined

by the APA. The claims asserted by BHMG and COP arise from the Operating Agreement and COP Amendments -- Excluded Liabilities under the APA. Defendants therefore owe Plaintiff

On March 19, 2013, Plaintiff made demand upon Defendants that Defendants

indemnify Plaintiff and hold Plaintiff harmless from all Losses and other expenses incurred by

Plaintiff in connection with the Operating Agreement and COP Amendments, including in connection with the BHMG mediations and further proceedings. On April 5, 2013, Defendants rejected Plaintiffs indemnification demand.

Defendants' refusal to acknowledge and adhere to their clear indemnification obligations arising from their failure to disclose the existence of the Operating Agreement and COP Amendments

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[T]he Sellers shall jointly and severally indemnify and defend the Purchaser and its Affiliates, directors, officers, partners, members, equity holders, employees, agents and representatives, and their respective successors and permitted assigns (collectively, the "Purchaser Indemnified Group") against, and shall hold the Purchaser Indemnified Group harmless from, any and all loss, Liability, claim, action, suit, proceeding, damage or expense (including reasonable attorneys' fees, court costs and other out-of-pocket expenses) (collectively, "Losses") incurred by any member of the Purchaser Indemnified Group resulting from, arising out of or in connection with . . . any Excluded Liabilities.

F.

Defendants' Indemnity Obligations

60.

Plaintiff has incurred and anticipates that it will continue to incur liability for

Losses resulting from the Excluded Liabilities described above in an amount not yet ascertainable including, but not limited to attorneys' fees, including in connection with the

FIRST CAUSE OF ACTION (Breach of Contract Against All Defendants)

61.

Plaintiff realleges and incorporates herein by this reference each and every

foregoing paragraph as though fully set forth herein. 62.

Plaintiff and Defendants are parties to the APA, a validly existing contract under

New York law. 63.

Pursuant to the terms of the APA, Defendants are obligated to defend and

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64. 65. 66. by Defendants' acts or omissions. 12

indemnify Plaintiff against and to hold Plaintiff harmless from all losses, liabilities and claims resulting from, arising out of or in connection with any Excluded Liabilities. The Operating Agreement and COP Amendments, as defined above, are Excluded

Liabilities under the APA. Plaintiff has incurred losses and liabilities and is subject to claims arising from those Excluded Liabilities as alleged above. Accordingly, Defendants owe Plaintiff indemnification obligations pursuant to the terms of the APA. Plaintiff has demanded that

Defendants recognize and honor such obligations but Defendants refuse to do so. Defendants have breached the APA by failing and refusing to honor and satisfy its

indemnification obligation. In addition, Defendants breached the APA by failing to disclose the existence of the Operating Agreement and COP Amendments as alleged above. Plaintiff has complied with all of its obligations under the APA, except as excused

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BHMG mediations and lawsuit, as well as any potential award made against Plaintiff therein.

67.

As a proximate result of Defendants' failure to perform as described above,

Plaintiff has suffered damages in an amount to be proven at trial, which amount includes the principal sum of $10 million.

SECOND CAUSE OF ACTION (Declaratory Relief Against All Defendants)

68.

Plaintiff realleges and incorporates herein by this reference each and every

69.

A justiciable controversy has arisen between Plaintiff and Defendants in that

Plaintiff contends that (1) Defendants are obligated to defend and indemnify Plaintiff against and to hold Plaintiff harmless from all losses, liabilities and claims resulting from, arising out of or in connection with any Excluded Liabilities; (2) the Operating Agreement and COP Amendments are Excluded Liabilities under the APA; (3) Defendants are obligated to defend and indemnify Plaintiff against and to hold Plaintiff harmless from all losses, liabilities and claims resulting from, arising out of or in connection with the Operating Agreement and COP Amendments; and (4) Plaintiff is not a party to the Operating Agreement or COP Amendments and the contractual obligations arising therefrom remain with Defendants. 70.

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Upon information and belief, Defendants' deny those contentions. Accordingly, Plaintiff seeks a declaration to the effect that (1) Defendants are

obligated to defend and indemnify Plaintiff against and to hold Plaintiff harmless from all losses, liabilities and claims resulting from, arising out of or in connection with any Excluded Liabilities; (2) the Operating Agreement and COP Amendments are Excluded Liabilities under the APA; (3) Defendants are obligated to defend and indemnify Plaintiff against and to hold Plaintiff harmless from all losses, liabilities and claims resulting from, arising out of or in connection with the

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foregoing paragraph as though fully set forth herein.

Operating Agreement and COP Amendments; and (4) Plaintiff is not a party to the Operating Agreement or COP Amendments and the contractual obligations arising therefrom remain with Defendants.

follows: 1. 2.

For compensatory damages in an amount according to proof;

indemnify Plaintiff against and to hold Plaintiff harmless from all losses, liabilities and claims

resulting from, arising out of or in connection with any Excluded Liabilities; (2) the Operating

Agreement and COP Amendments are Excluded Liabilities under the APA; (3) Defendants are

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3. For reasonable attorneys' fees; For costs incurred herein; and 4. 5. Dated: New York, New York May 8,2013 14

obligated to defend and indemnify Plaintiff against and to hold Plaintiff harmless from all losses, liabilities and claims resulting from, arising out of or in connection with the Operating

Agreement and COP Amendments; and (4) Plaintiff is not a party to the Operating Agreement or COP Amendments and the contractual obligations arising therefrom remain with Defendants;

For such other, further or different relief as the Court may deem proper.

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PRYOR CASH N LL By:

For a declaration to the effect that (1) Defendants are obligated to defend and

ss s 44A;iAI Jame S. I ' Crieny/ imes Square ew York, NY 1003. (212) 421-4100

WHEREFORE, Plaintiff prays for judgment against Defendants, and each of them, as